Estate taxes: They're different for foreigners

ByGuy HalversonApril 30, 2001

Q I'm not a US citizen, but my husband is. We own an assortment of assets, including bank accounts, stocks, and real estate. If my husband were to pass on, would the estate be passed on to me differently than if I were a US citizen?

L.O., Boston

A "Yes, it would be passed on differently," but only if you are wealthy, says Gary Schatsky, an attorney and fee-only financial planner in New York. For most couples with regular assets, your husband could still pass along to you what a US citizen would normally get - namely, a tax-free exemption on $675,000 in assets.

But if you have a lot more, you will face estate taxes that a US citizen would not have to pay. In this case, you have three alternatives, says Mr. Schatsky: 1. Become a US citizen. 2. Have an attorney set up a "qualified domestic trust." A QDT would help ease the tax bite in the event of his passing. But the estate would be subject to more taxes than if you were a US citizen. 3. Have your husband pass along $100,000 to you annually, which is permissible. Check with an attorney before doing so, he says.

Q I have $30 a month to invest. Are there mutual funds that will let me invest on a monthly basis with such a small amount?

G.C., Pendleton, Ore.

A There are a few. TIAA-Kref (800-842-2733) lets you invest $25 a month, or $25 each quarter. The money would be automatically transferred from your bank account. Also, Pax World (800-767-1729) lets you invest on a quarterly basis, with a minimum of $50. So you could send along $90 ($30 from each month).

Q Are there any tax-exempt federal bonds that I can buy in lots of $1,000? When does it make sense to buy such bonds?

J.B., via e-mail

A Sure, US Treasury bills, notes, and bonds are free of state and local taxes, though subject to federal taxes, and can be bought in increments of $1,000, either by telephone (800-722-2678) or the Internet (www.treasurydirect.gov).

Once you open an account, the Treasury can transfer money directly from your bank account. Your ownership is in account form, sort of like a bank account.

Why buy? "People have rediscovered the beauty of a balanced portfolio," a Treasury spokesman notes wryly. "Our bonds have very good credit quality, pay competitive interest rates, and are convenient to buy."